Trump currency weakness

The fall in the dollar is a good sign for the global economy

If you do not take into account the collapse of the bitcoin course, then the most discussed trend of foreign exchange markets last week was a prolonged weakening of the dollar in relation to the currencies of developed and most developing countries. Since the beginning of 2017, the euro has strengthened the dollar by almost 20%, and this is despite the regular increase in the key rate of the Fed, the strong growth of the American economy and the tax reform of Donald Trump. The ruble also remains relatively expensive (56.6 rubles/dollar), forcing the Ministry of Finance to more intensively buy currency. Even the British pound, still not recovering from Brexit, was able to restore his position a little, not to mention Japanese yen and Chinese yuan.

Many commentators (and not only Russian patriotic analysts, but also some American economists) took advantage of the moment to remind readers of the inevitable collapse of the dollar and the subsequent transformation of the world order. Typically, propaganda proceeds from the fact that the dollar is a “soap bubble”, which keeps afloat due to the printing press, the geopolitical expansion of the United States and the uncontrolled growth of the state debt. This argument is not taken into account by a single nature of all modern fiat currencies, nor objective indicators of the American economy, including a huge market for dollar assets - the most liquid and risk -free investments from all existing options.

In recent days, the dollar has been trading at minimum marks in three years. And oddly enough, this is a positive symptom for the whole world, and not a messenger of the approaching financial apocalypse.

The weakening of the dollar speaks of overcoming the consequences of the 2008 crisis: the world economy last year increased by 3.6%, due to which new investment opportunities appeared outside the United States. Some of the investors switched from the dollar to the euro in anticipation of the European Central Bank signal to turn the quantitative softening program - counting on such a solution is allowed to revive economic growth in European countries. Interest rates increase in Japan, Canada and other countries, stimulating the increase in asset profitability. Against this background, the neat and measured normalization of the FRS monetary policy, the next round of which is expected in March, is perceived by the market quite calmly.

However, the synchronous weakening of the dollar relative to most national currencies cannot be caused by a favorable economic situation in the world. The first internal pressure factor for the dollar is the level of chaos within the Trump administration, which has continuously increased since the inauguration of the American president a year ago. Last Friday, Republicans and Democrats could not agree on the budget parameters for 2018, which is why the government for the first time in 5 years was forced to suspend the work.

Secondly, the unexpected effect on the currency course was had a tax plan of Republicans, which involves a large-scale reduction in corporate taxes. Investors believe that the short -term economic boom, which should cause reform, will not be able to compensate for the loss of tax revenues of the budget of $ 1.5 trillion over the next 10 years. As a result, the American authorities will have to go to increase the public debt, which may threaten the long -term budget stability of the United States.

A cheap dollar plays into the hands of American transnational corporations that sell their products abroad. Trump repeatedly made statements that, due to the strong dollar, the company from the United States lose competition to Chinese manufacturers. However, Trump's ideas about economic policy do not differ in sequence and change in the most unpredictable way.

The largest risks for investors are implemented in case of revision of agreements within the framework of the North American free trade zone and the outbreak of trade war with China. However, if none of this happens, then the growth of interest rates in America will take its own, and the dollar will quickly play a recent fall.

It is possible that on a long horizon the effect of the dollar in the global financial system will decline.

Today ⅔ all foreign currency reserves in the world are stored in the American currency, but the pressure from the euro and the yuan is gradually increasing. In recent years, central banks began to turn to Yuan as a reserve currency in order to diversify risks, and China itself is going to launch trade in oil in national currency. Last week, the press even flashed the information that Beijing was stopping the purchase of the American public debt - the Chinese authorities made a refutation, but investors made their conclusions. However, a multi-vesting financial system, which once can replace the dominance of the dollar, has little to do with a picture of the world of popular conspiracyologists.